Interest rates at 14-15 percent are higher than those Buenos Aires paid during the 2001 debt crisis

Related Articles

The two major Argentinean newspapers, Clarín
and La Nación, said they were stunned by the
high interest rate the Venezuelan government has charged recently
to buy USD 1 billion in Argentinean sovereign debt bonds.

Both newspapers explained that Argentina is paying an interest
rate ranging from 14 to 15 percent, which is higher than the
interest rate Buenos Aires paid in 2001 when the Latin American
country was hit by economic turbulence following the economic
measures implemented by then Finance Minister Domingo Cavallo.

Clarín said, "Argentina had to swap bonds worth
USD 1.4 billion for the USD 1 billion in cash Venezuela paid.
The interest rate is nearly two points higher than the rate
the Venezuelan government charged last May 23, when Venezuelan
President Hugo Chávez bought USD 1 billion in Argentinean
US-dollar denominated Boden 2015 bonds."

Based on these figures, Argentina is to pay a 14.87 percent
interest rate, whereas the interest rate Peru is paying to
place sovereign bonds with the same maturity as the Argentinean
titles ranges from 5 to 6 percent.

Analysts concur that Argentina was forced to undertake this
operation because it failed to reach an agreement with the
holders of USD 20 billion in Argentina debt bonds, as they
refuse to refinance their debt in 2005.

Chávez said last Tuesday in Buenos Aires, during his
visit to Argentina, that he would continue to provide financial
aid to Argentina, "as far as he can."

"We are going to meet Argentina's needs insofar as they emerge
and provided that we are able to help," Chávez stressed.

The Venezuelan ruler confirmed the recent operation during
his visit early this week, when he told reporters that Venezuela
bought USD 1 billion in Argentinean US-dollar denominated
Boden 2015 bonds "one week ago."

Venezuela has become a key source of funds for Argentina.
In fact, Venezuela has bought approximately USD 6 billion
in Argentinean debt bonds over the past two and a half years.

Usually, when the Argentinean bonds are in possession of
the Venezuelan Finance Ministry, it sells the titles in Venezuelan
bolivars with a premium to previously selected Venezuelan
banks.

Venezuelan financial institutions purchase the bonds and
resell them abroad to obtain foreign currency amid the tight
exchange controls in force in Venezuela.

The banks that have not covered their legal positions in
dollars, can keep the foreign currencies whereas the financial
institutions that have exceeded their quota, sell the dollars
in the parallel market at a price that benefits them.